Will Baemin Be Able To Catch Up In Vietnam’s Food Delivery Scene?

This post is also available in Vietnamese

It will be a very difficult, uphill battle.
Delivery Hero, the Germany-based food delivery platform has returned to Vietnam, through Baemin, which is owned by Korea-based Woowa brothers recently acquired by Delivery Hero.

Some of you might know that Delivery Hero’s subsidiary Foodpanda used to operate in Vietnam since 2012, but decided to pull out in 2015. At that time, Foodpanda’s Tim Schefenacker attributed the reason to Vietnam being “a small and rather long-term opportunity”.

Friends who were involved in some of the decisions back then told me that the challenges they faced included lack of infrastructure (including mobile penetration and payment), price-sensitive customers, and also the company’s inability to localise.

Interestingly, the company Baemin acquired last year (in order to enter Vietnam) was Vietnammm, the very company that took over Foodpanda’s operations in 2015.

Would Delivery Hero be luckier this time around, with Baemin, who has been operating in Vietnam since 2019?

A different market
If you watched “Crashing landing on you” from outside Korea, you would have noticed the delivery bikes in many of the restaurants featured.

In fact, food delivery became popular in Korea as early as the 1950s, but really took off at a massive scale with the emergency of fried chicken restaurants in the 1980s. The excessively fast-paced working life makes delivery preferred choice, an earlier survey by Korean research firm Embrain indicated that 68.5% of Koreans list food delivery as their preferred method of eating out.

It is no wonder Baemin’s Korean name actually means “food delivery nation”.

It also helped that the mainstream food in Korea, which includes soup-based traditional dishes, Chinese dry noodles, fried chicken, and fried-sticky-cakes are fast to prepare and easy to standardise.

Also, as many restaurants already run delivery operations with phone orders and their own riders, delivery platforms are essentially marketing platforms to aggregate customer demand.

Vietnam is very different in that regard. Good and cheap food has always been available, and young people have preferred to eat out. Many of the popular dishes in Vietnam are better consumed fresh immediately rather than put in a delivery box.

Right expectations on size and cost structure

Euromonitor has estimated the market size of Korea, the world’s 4th largest food delivery market, is estimated to be around US$6 billion. The same firm had the market in size in Vietnam to grow to US$38 million this year from US$33 million in 2019 — or less than 0.6% of South Korea.

Even with the 11% annual growth predicted by Euromonitor, it will take the Vietnamese market more than 4 years to reach 1% of South Korea’s current level.

Investors need to be acutely aware of the market size before making any commitment. At this stage, it is definitely not wise for Delivery Hero or Woova to invest hundreds of millions into the market of Vietnam, as rumours suggested. If they did, the money would probably mostly go to subsidies, without a real market being developed.

And since we did not have a delivery culture, and small F&B outlets are common, the platform has to build their own delivery infrastructure complete with riders and payment to function properly.

Even though Baemin already has a segment of a delivery fleet in Korea, building an entire operation based on that is a different ball game, especially in a market with low basket size. It is essentially a three-sided marketplace instead of a two-sided one in Korea.

It requires scale (i.e. investment in infrastructure) and relentless cost optimisation.

Strong competition from incumbents

The market in Vietnam is now dominated by GrabFood, with local players including Now owned by Foody.vn taking up the rest. It will not be an easy battle for Baemin to wrestle over the market share.

A recent survey by local market research firm Q&Me indicates that GrabFood is popular with almost 80% of the users, followed by Now, which is used by 56% of the users. Under COVID, only 15% of the survey respondents used Baemin, showing that thus far the traction is limited.

Can it ramp up? Yes, it has been trying to, from the VND70,000 discount vouchers with no minimum spend to offering delivery riders twice the market rate. However, as we all know, such cash burns, while useful in the early stages of a market, are not sustainable.

There are two critical differences between Grab and Baemin.

First, Grab is a ‘super app’, which offers ride-hailing, parcel delivery and other services. This has allowed Grab to acquire and retain customers at a much lower cost, and also offer more value to its network of delivery riders.

Grab also invested “hundreds of millions” into Moca, a mobile wallet. The addition of payment allows the company to form a full ecosystem, which is not only more cost-effective, but much more defensible compared to a company that does only food delivery.

Can it win?

Before exiting the Vietnam market, Foodpanda realised that the price elasticity of this market was the highest amongst the 40 or so markets it was operating in back then. Promotions would drive volumes up very quickly, and after promotions, everything goes back to the original volume, instead of clinging to a higher level.

The market is still in a growth phase, albeit from a very low base and at a speed that is good but not phenomenal. For Baemin to make meaningful, sustainable operations in the market — it needs to focus on building its core competencies, whichever those might be.

At least there are more than 100,000 Korean expats living in Vietnam.

However, one thing is for sure, burning money for growth will not work in this market.

Written by Doan Kieu My, founder of YellowBlocks.

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